Paulson: housing slump not fully digested in markets

WASHINGTON (Reuters) - Treasury Secretary Henry Paulson on Wednesday said that financial markets have not fully digested how the housing downturn may impact the economy, although they are positioned for the wave of mortgages that will reset to higher rates over the next two years.

"That's pretty well baked into what's going on in the capital markets. I think that markets understand that and a lot of those markets have been downgraded and repriced in the markets," Paulson told the House of Representatives Budget Committee, referring to the 1.8 million mortgages expected to reset over the next two years.

"That doesn't mean that the human cost and the cost to the economy overall and neighborhoods has been repriced and that is something we're working hard to deal with a number of programs we have," he said.

(Reporting by David Lawder; Editing by Theodore d'Afflisio)